The establishment of dorsal-ventral asymmetry of the Drosophila embryo requires a group of genes that act maternally. None of the previously identified dorsal-ventral axis genes are known to produce asymmetrically localized gene products during oogenesis. We show that rhomboid (rho), a novel member of this group, encodes a protein that is localized on the apical surface of the dorsal-anterior follicle cells surrounding the oocyte. Loss of rho function causes ventralization of the eggshell and the embryo, whereas ectopic expression leads to dorsalization of both structures. Thus, spatially restricted rho is necessary and sufficient for dorsal-ventral axis formation. We propose, based on these observations and double mutant experiments, that the spatially restricted rho protein leads to selective activation of the epidermal growth factor receptor in the dorsal follicle cells and subsequently the specification of the dorsal follicle cells.